A case for privatizing the Postal Service

By Kedar Pavgi

July 25, 2012

The U.S. Postal Service should be completely privatized, President Obama’s former budget chief argued in an op-ed Tuesday.

Peter Orszag, the former director of the Office of Management and Budget, said on Bloomberg.com that USPS would be better off in the private sector, where it could escape congressional requirements that limit its ability to cut costs and become more competitive.

“Privatization is not always the best way to improve efficiency, but the problems facing the Postal Service will be difficult to address if it remains within the government, and there is no longer any sound reason for it not to go private,” Orszag wrote.

Mail volume has decreased 20 percent during the past five years, and revenues have fallen 12 percent during the same period. The agency lost $25 billion from fiscal 2007 to fiscal 2011, he noted.

USPS has improved mail processing efficiency, Orszag said, but it operates with severe congressionally imposed constraints that hamper its ability to take further steps such as selling off underused facilities. Under the 2006 Postal Accountability and Enhancement Act, the agency also is required to prefund retiree health benefits and faces several payment deadlines later this summer. An upcoming $5.5 billion payment due on Aug. 1 could force the Postal Service to default for the first time in its history.

The Senate passed a bill that would restructure the payment obligations, but the House has not voted on its version of postal reform legislation and is unlikely to do so before the lame duck session in November.

Even if Congress were to pass a reform bill, it would help only temporarily, Orszag argued.

“Privatization has become the best path forward, mainly because it would take Congress out of the picture,” wrote the former budget chief, now vice chairman of corporate and investment banking at Citigroup Inc.

Orszag noted other countries including Germany, the Netherlands and Japan have privatized mail delivery. He also said there would likely be interest from the private sector, given USPS’ facilities, monopoly access to residential mailboxes and overfunded pension plan. He did add though, that challenges remain even if USPS is removed from the government.

“Despite claims to the contrary, privatized entities do not, on average, become miraculously more productive than public agencies,” Orszag said. “[Privatization] can sometimes turn out to be a disaster -- as has been the case with the financially troubled U.S. Enrichment Corporation.”

A representative from USPS did not have a direct comment on Orszag’s op-ed piece, but did emphasize the agency’s five-year profitability plan developed earlier this year in conjunction with Evercore Partners, a restructuring and investment banking firm. The representative said congressional cooperation, and finding other ideas to grow revenues and contain costs would be essential to maintaining USPS’ financial viability.